October 20, 2021

Daily Market Commentary

Canadian Headlines

  • Canadian National Railway Co. said Chief Executive Officer Jean-Jacques Ruest plans to retire by the end of January, handing an apparent victory to a major shareholder who had been pressuring him to step down. The surprise announcement comes one day after TCI Fund Management Ltd., CN’s second-largest investor, released a presentation on its plans to make the railway more efficient and profitable. Ruest’s departure “is a clear admission by the board that change is needed,” TCI said in a statement.  The investment firm, which is run by billionaire Chris Hohn, has nominated four directors to CN’s board and pushed for Ruest to be replaced with industry veteran Jim Vena, the rail company’s former chief operating officer. It made clear it would continue its campaign to shake up the board.
  • BHP Group, the world’s biggest mining company, has raised its offer for Noront Resources Ltd., trumping a bid from iron ore billionaire Andrew Forrest and securing the support of the Canadian nickel miner’s board. The Melbourne-based company increased its bid by 36% to C$0.75 per share, above the C$0.70 offered by Forrest’s Wyloo Metals Pty Ltd. BHP said the offer, which is open to shareholders until Nov. 9, doesn’t require the support of Wyloo to proceed, even though that company holds about 37% of Noront stock.

World Headlines

  • In Europe, Nestle SA and Deliveroo Plc led an increase in food and beverage companies as both forecast faster growth, while Kering SAled a decline in retailers after slowing sales at Gucci. Rio Tinto Group dropped with mining shares and base metals after China launched a blitz of measures to tackle the energy crisis. Oil fell from a seven-year high. Global bonds were little changed as U.K. consumer pricesaccelerated well beyond the Bank of England’s target for a second month — the last data before the central bank’s decision on interest rates next month.
  • Stocks were mixed Wednesday as traders weighed company earnings and risks from inflationary pressures. Treasury yields and the dollar were little changed. Chinese technology stocks listed in the U.S. rallied in pre-market trading, along with Hong Kong peers such as Alibaba Group Holding Ltd. on hopes the worst of Beijing’s regulatory crackdown is over. Tesla Inc. will be in focus on the busiest day so far of this earnings season. Index futures were little changed after the S&P 500 closed near a record. The earnings season has taken some of the spotlight away from concerns about stagflation — the combination of lower growth and higher inflation. Still, clouds are gathering over the economic recovery from price pressures stoked by energy costs, global supply-chain bottlenecks and reduced central bank support.
  • Asian equities advanced with Hong Kong-listed tech shares extending their rally to a fourth day, buoyed by encouraging U.S. earnings and growing optimism that the strictest of China’s new regulations on tech firms may already be announced. The MSCI Asia Pacific Index rose as much as 0.7%, powered by Alibaba Group Holding Ltd., which closed up 6.7%. The equity gauge also climbed after Johnson & Johnson raised its profit forecast and Netflix Inc. reported a jump in subscribers. Hong Kong and Australia were among the top-performing markets. The regional benchmark has gained 5% over the past two weeks as the earnings season progresses and inflation and supply chain worries ease. The measure is close to surpassing its 100-day moving average.
  • Brent oil declined from its highest level in seven years as a U.S. industry report pointed to an increase in crude stockpiles and China unleashed measures aimed at stabilizing its power supplies for the winter. Futures in London fell below $85 a barrel amid a broader drop in raw materials including aluminum and copper. China is studying ways to intervene in the coal market to ensure reasonable prices, while the nation’s energy watchdog hosted a Tuesday meeting with refiners after oil prices soared. The American Petroleum Institute reported crude inventories rose by 3.29 million barrels last week, according to people familiar, though the industry group reported another large decline at the key storage hub of Cushing, Oklahoma. Inventory draws there have seen the market structure of U.S. crude futures rocket higher, with the much-watched spread between the nearest two December contracts touching $10 a barrel this week, its strongest since 2013.
  • Gold rose for a second day following commentary from a Federal Reserve official that played down the possibility of imminent rate hikes. Governor Christopher Waller said Tuesday the Fed should begin tapering its bond-buying program next month, though interest-rate increases are probably “still some time off.” Upcoming speeches and discussions by officials including Randal Quarles, Mary Daly and Chair Jerome Powell will also be keenly watched ahead of the central bank’s meeting next month. Bullion has fluctuated recently as traders attempt to gauge the pace at which pandemic-era stimulus will be reined in by central banks. Ongoing inflation, driven by high energy prices and snarled supply chains has sparked concerns rate hikes could come sooner than expected, a painful prospect for gold. Governor Waller said that if inflation remains above 2% well into 2022 he would favor an earlier liftoff.
  • There won’t be a fresh lockdown of the U.K. economy, even as cases tick upward and Prime Minister Boris Johnson warns of a difficult winter ahead, Business Secretary Kwasi Kwarteng said. New York City will eliminate the option for testing and require that all of its municipal workforce get vaccinated against Covid-19, Dow Jones reported, citing a spokeswoman for Mayor Bill de Blasio. Singapore set a record with almost 4,000 daily Covid-19 cases, straining the city-state’s health care system. Authorities are monitoring the situation “to determine if this is a temporary spike or a further surge in infections.”
  • Congressional Democrats made significant headway in breaking their stalemate on President Joe Biden’s economic agenda Tuesday by jettisoning or trimming portions of the multitrillion-dollar tax and spending package. The progress came after Biden met with representatives of both wings of the party at the White House on Tuesday and as Senate Majority Leader Chuck Schumer put pressure on Democrats to sew up a deal this week. Among the expected targets for cuts is a program that would provide two years of tuition-free community college. The extension of the expanded child tax credit, meanwhile, will likely be one year as opposed to four, according to a personal familiar with the discussion. Lawmakers are also discussing keeping health care expenditures under $250 billion, the person said.
  • Italy’s Falck Renewables SpA will sell its founding family’s 60% holding in the company to an investment vehicle run by JPMorgan Chase & Co, in a deal valuing the company at nearly $3 billion.  Shares in Falck Renewables rose as much as 15% in Milan after adding more than 3% on Tuesday, when Bloomberg reported the family was weighing options for its stake.  Falck Renewables will sell the holding to JPMorgan’s Infrastructure Investments Fund, according to a statement. The price of 8.81 euros ($10.25) per share, a premium of 29.2% to the 3-month volume weighted average share price, values the full company at just below $3 billion. The agreement will trigger a mandatory cash tender offer at closing.
  • Johnson & Johnson could start collecting on its new legal strategy for dealing with baby-powder cancer claims as early as Wednesday as it seeks to win an initial courtroom showdown with 35,000 people who claim they were hurt by the widely used product. The consumer health-care company wants a federal judge to temporarily halt all lawsuits related to the talc in its baby powder so it can negotiate a settlement under bankruptcy rules usually reserved for failed companies that can’t pay their debts. Johnson & Johnson itself is healthy financially. The company created a new corporation responsible for paying all baby-powder claims, then put that unit into bankruptcy where it will seek a temporary halt to lawsuits.
  • Bundesbank President Jens Weidmann will step down after more than a decade in the post, marking the exit of one of the most hawkish policy makers at the European Central Bank just as it debates the future of its post-crisis stimulus.  The 53-year-old is resigning for “personal reasons” and will leave at the end of the year, according to a statement on Wednesday. He doesn’t have a new job lined up, a spokesman said. The Bundesbank published a letter to staff where he signed off with a final expression of frustration at the inflation dangers fostered by ECB policies.
  • Chancellor of the Exchequer Rishi Sunak plans to extend a program of state-backed loans for U.K. businesses, one of the measures to aid the economy’s recovery from the worst recession in a century. The Recovery Loan Scheme was due to end Dec. 31 but will now be extended for a further six months, according to a person familiar with the Treasury’s plans who asked not to be named because discussions are still underway. Sunak is set to announce the decision in his budget on Oct. 27, the person said. Sunak is trying to spur investment and prop up businesses after the recovery hit a weak patch. The economy grew less than expected in August after posting an unexpected drop in gross domestic product in July. That’s cast doubt on whether output will return to pre-pandemic levels this year.
  • European Union countries are trying to reach agreement on ways to ease pandemic travel restrictions within and into the bloc as leaders work to boost Covid-19 vaccination levels. One option under discussion ahead of a two-day EU summit in Brussels is a plan to effectively scrap the traffic-light system of green and red areas in the bloc that has been used to govern travel rules and instead allow anyone who has been vaccinated to travel freely, according to a European Commission informal proposal seen by Bloomberg. The plan would rely on the use of the widely adopted EU digital Covid passports, which have allowed travelers to cross borders without tests or quarantines since the summer if they can show they’ve been fully inoculated or recovered from the virus. Travelers without a Covid pass could be required to undergo tests after arriving in their destination.
  • Base metals slipped after China launched a blitz of measures to tackle the energy crisis that’s pushing up global commodities prices and threatening economic growth. The shift began on Tuesday as various arms of China’s government announced policies aimed at stabilizing power supplies for the winter. Authorities are mulling intervention in the coal market to ensure “reasonable” prices, and coal futures sank from a record high. Higher energy costs have fueled recent price gains for metals producers. Aluminum, a heavily energy-intensive material that’s already seen big output cuts in China, slipped Wednesday, with futures in Shanghai tumbling nearly 8%. Copper also declined, as moves by the London Metal Exchange to restore market order added to the risk-off mood. The bourse launched an inquiry into unusual trading and triggered rarely-used rules to cap nearby spreads.
  • Tesla Inc. will be in focus on the busiest day so far of this earnings season in a session that will help investors determine whether a recent rally in cyclical heavyweights has legs. The reflation trade has been a winner over the past month as the oil, auto, rail, regional bank and materials sectors have led the market. Earnings have allowed the rally to continue, with some 84% of S&P 500 companies topping expectations in the first week of results, led by interest-rate sensitive bank stocks. Wednesday’s reporting roster includes the electric-car maker, pipeline giant Kinder Morgan Inc. and railroad operator CSX Corp. These cyclical companies, along with Comerica Inc., Baker Hughes Co., Northern Trust Corp. and Citizens Financial Group Inc., which are also reporting earnings, are among the best performing large-cap stocks over the past month.
  • Verizon Communications Inc. raised its profit outlook and exceeded wireless subscriber growth estimates for the second straight quarter as free-phone promotions helped bolster the largest U.S. carrier in the race to sign up new 5G customers. Verizon signed up 699,000 regular monthly subscribers in the third quarter, according to a statement Wednesday. The figure includes 429,000 new phone customers. Analysts had predicted a gain of 566,218 total subscribers. Profit rose to $1.41 a share, excluding items, while analysts expected $1.36, based on the average of estimates compiled by Bloomberg. The company now expects full-year adjusted earnings of $5.35 to $5.40 a share. Analysts had expected $5.29.
  • As the Bitcoin rally nears records and takes Wall Street by storm, crypto bulls and bears can now jack up their bets with derivatives on the newly minted futures ETF — the latest industry watershed. After the second-busiest exchange-traded debut on record, options on the ProShares Bitcoin Strategy ETF (ticker BITO) will begin trading on the NYSE Arca Options and NYSE American Options exchanges on Wednesday.  It means investors will be able to hedge or lever up underlying positions in the first U.S.-listed fund tracking futures on the world’s biggest digital currency. Traders — whether or not they hold the fund — can bet on or against BITO by buying and selling bullish call contracts or bearish puts.
  • Biogen Inc. raised its financial guidance for the year despite expecting little revenue from its just-approved Alzheimer’s therapy. Sales of the controversial drug, which was approved earlier this year in the U.S., were just $300,000 in the quarter, the company said in a statementWednesday. Some doctors have said that they won’t prescribe the drug and Medicare hasn’t yet decided whether it will cover it. Biogen shares, which were up 9.5% this year through the close of trading on Tuesday, gained 2% in premarket trading in New York.
  • Jack Ma, the co-founder of Alibaba Group Holding Ltd., is traveling to Europe for the first time since a bruising government crackdown on his tech empire, according to Hong Kong media reports. The 57-year-old billionaire is in Spain after a stop in Hong Kong, according to a report in the Alibaba-owned South China Morning Post. Ma is abroad for a series of business meetings, including a tour of the agricultural industry and environmental technology in Spain, the paper said. An Alibaba spokesperson declined to comment on Ma’s whereabouts, referring queries to his foundation. The foundation didn’t immediately respond to an emailed request for comment.
  • Animoca Brands, a Hong Kong-based crypto game maker, has received fresh capital from investors including Ubisoft Entertainment and Sequoia China, doubling its valuation to $2 billion in less than four months. The non-fungible tokens (NFT) creator has completed a $65 million funding round at a pre-money valuation of $2.2 billion, the startup said in a statement. Investors in the round also included Dragonfly Capital, Tron founder Justin Sun, and existing backers like Liberty City Ventures, it said. The fundraise comes as venture investors and tech giants such as Facebook Inc. jump on the metaverse rush, trying to grab a piece of a future where people play games and interact with one another in an ultra-realistic digital world. In July, Animoca Brands closed a previous funding round of $139 million, boosting itself to unicorn status. Earlier this month, venture firm Andreessen Horowitz led a $152 million round in the studio behind hit NFT game Axie Infinity, which Animoca Brands also has a stake in.

“Start each day with a positive thought and a grateful heart.” ― Roy T. Bennett

*All sources from Bloomberg unless otherwise specified